Monday, December 18, 2017

Uganda maintains rate on subdued outlook for inflation

Uganda's central bank left its Central Bank Rate (CBR) at 9.5 percent, saying the near-term outlook for inflation remains subdued while economic growth is expected to expand at a solid pace, boosted by public investments, growth in consumption and monetary stimulus.
The Bank of Uganda (BOU) has cut its rate by 250 basis points this year - most recently in October - following cuts of 500 points last year as the central bank unwinds rate hikes totaling 600 points in 2015 in response to more stable and declining inflation.
The BOU said its current monetary policy stance was appropriate "based on the outlook for inflation and economic activity, together with an expansionary fiscal policy in FY 2017/18; and the evolution of the risks and uncertainties."
Uganda's headline inflation rate dropped to 4.0 percent in November from 4.8 percent in October and 7.2 percent in May as food prices fell. Core inflation eased to 3.3 percent in November from 3.5 percent in October, helped a stable exchange rate in the last year.
BOU said the near-term outlook for inflation remains subdued but core inflation is expected to pick up in the 2018/19 financial year to around 5 percent as spare capacity is reduced.
The BOU targets core inflation of 5.0 percent, plus/minus 2 percentage points.
Uganda's economy has been improving this year after bad weather hit agriculture last year. Revised data for 2016/17, which ended June 30, showed growth of 4.0 percent, down from 4.7 percent in 2015/16.
For the current 2017/18 financial year, the BOU forecast growth of 5.0 percent, with indicators of economic activity pointing to stronger growth in the first four months of the current financial year. In October the BOU forecast 2017/18 growth of 5.0 to 5.5 percent, with growth then seen accelerating to 6.0 to 6.5 percent in the medium term. In the second calendar quarter, Uganda's Gross Domestic Product grew by an annual rate of 5.5 percent, up form 4.6 percent in the first quarter.

The IMF also described BOU's rate cut in October as appropriate but noted with concern a rise in poverty headcount to 27 percent of the population. In the second calendar quarter, Uganda's Gross Domestic Product grew by an annual rate of 5.5 percent, up form 4.6 percent in the first quarter. After falling sharply in 2014 and 2015, Uganda's shilling depreciated further last year but at a slower pace. This year the shilling has remained more stable and was trading at 3,617 to the U.S. dollar today, down 0.4 percent this year. The stock of reserves as of Dec. 11 was US$3.47 billion, enough to pay for 5.2 months of imports, and the BOU expects the exchange rate to remain stable in the short run.www.CentralBankNews.info